A New Tactic: Tell Fraud Stories in All Business Courses

In previous columns, we’ve highlighted college courses or programs that concentrated on fraud. However, in this column, guest author, and ACFE Higher Education Committee member, Mark Morgan, CFE, CPA, explores the advantages of expanding anti-fraud education not so much through courses and programs centered on fraud but through what Morgan calls “anti-fraud storytelling” in all business courses. Morgan is a former senior criminal investigator for the Mississippi State Tax Commission, and is now an instructor of accounting at Mississippi College in Clinton, Miss.

Instructors teaching anti-fraud courses have reported that these classes are extremely popular with students (Carnes & Gierlasinski, 2001). Former ACFE Higher Education Committee Chair Mary-Jo Kranacher, MBA, CFE, CPA, has stated that “students who have been exposed to the principles of fraud examination have overwhelmingly described their experience as exciting, fun and interesting” (FraudEDge, March/April 2007). Indeed, any time students are exposed to a story involving fraud, it tends to perk up their interest. Why is that?

The answer might lie in that fraud stories are about human nature and human behavior. And to most students, human nature and human behavior are far more interesting subjects than the banal matter of dollars and cents.

Fraud stories usually involve gall combined with a human weakness – a combination that makes for noteworthy drama. And as any television producer will tell you, every durable story that captures the audience’s interest must contain an element of drama. Accordingly, educators should exploit the natural drama in fraud stories to convey anti-fraud knowledge – not just in fraud classes but in other business courses as well.

For many years, business professors have been teaching business principles without including anti-fraud knowledge. Educators teach management principles that identify strategic goals and how to effectively implement those goals. Business professors illustrate marketing principles that combine strategy and innovation with product and distribution to develop and retain customers. Business educators also cover accounting standards for recording economic transactions, which encourage consistency and transparency in financial information.

Every day, every semester, business instructors affirm these principles, goals, strategies, and standards. However, the repetitive nature of coursework often tempts educators to immerse themselves into a method of instruction that increasingly feels stale, for both the instructor and the student. Too often a fixation on “just delivering textbook material” prevents educators from communicating relevant, real-time information to students.

But don’t lose hope! Storytelling is the antidote. Communicating real-life stories is an interesting, respected, and enduring way to educate. Probably more than any other kind of storytelling, stories about fraud are real and relevant.

REAL-LIFE STORIES 

Imagine a professor teaching a principles of accounting course. When the professor comes to the chapters on internal controls and petty cash, she decides to depart from the textbook and tell a fraud story. She begins by talking about a young man named John who works for a beer distributor. John initially had been hired as extra help in warehousing, but he proved to be effective in all the company’s departments. He demonstrated that he followed detailed instruction well. Over time, he was entrusted with running errands between departments, and later, with picking up needed items around town. However, to retrieve these items, John needed access to cash.

Whenever John needed cash to purchase an item for the company, he simply told the accounting clerk in charge of petty cash, and the money was advanced. After a while, John stopped getting an advance, and he simply bought the items himself and returned with a receipt. He was trusted readily and paid promptly. Many of the items purchased were from the local hardware store, which gave receipts in the form of a calculator tape with “Joe’s Hardware” stamped on the back.

One day when John was at the hardware store, he purposely dropped some screws on the floor behind the hardware store’s front counter. When the cashier reached down to pick up the dropped items, John pocketed the “Joe’s Hardware” rubber stamp. Later, using his own ink pad and calculator tapes, John began to submit fictitious receipts repeatedly to his employer, and was reimbursed for them.

John was caught ultimately. An astute auditor (who happened to also be a Joe’s Hardware customer) noticed that the receipts John submitted were stamped in black ink; Joe’s Hardware always used red ink. The auditor began asking questions. John was found out, and he was held responsible for the $5,000 he stole from his company.

This story of John and the hardware store receipts gives the accounting students a compelling illustration of the necessity of internal controls and the tragedy that can result if those controls are weak and there’s a lapse in effective petty cash oversight. The students thus learn an extremely valuable lesson and in a much more effective way than just reading about the principles of internal control from a textbook.

Now consider the case of a management professor teaching Management 101. The professor is discussing ethical standards expected of all employees. The educator deviates from his usual lecture to tell the story of Jane. Jane was an office manager for a local auto parts store. In her job, Jane had access to the customer lists and invoices and oversaw the payment of refunds. About twice a month, an invoice for the sale of parts to a “Lake’s Auto Shop” was generated, followed shortly by the notices showing the return of the parts. And while the invoices were never paid, Jane always cut refund checks. All the paperwork was bogus, except for the checks. The checks, worth several thousand dollars, were cashed at a local bank – by Jane.

After several years of perpetrating this scheme, Jane was caught. A company auditor noticed that there was only a fax number, and no address or phone number, for “Lake’s Auto Shop.” In searching for the business’ name, the auditor uncovered the fraud. Investigating further, the auditor discovered Jane’s transgressions were no secret. Jane had bragged about her fraud to the accounting clerks who worked for her. Jane bought these clerks’ allegiance with elaborate lunches and weekend casino trips.

Eventually Jane admitted her guilt. Her employer had lost more than $460,000. Jane was prosecuted for embezzlement and all the involved employees were fired.

Imagine the power of including Jane’s story in a classroom lecture. Fraud storytelling is a dynamic way of augmenting the lessons that would otherwise just lie on the pages of a textbook. Descriptive storytelling brings business concepts to life. Human resources guru Tom Peters once wrote that “the best leaders ... almost without exception and at every level, are master users of stories and symbols.” Fraud storytelling is storytelling at its very best. The victimized companies are the symbols of those in need of protection. Educators would do well to learn more about fraud cases and entwine these stories in class lectures to create an active, engaged classroom.

OBTAINING FRAUD STORIES 

Where does an educator find these fraud stories? Often we can find them in the world around us, if we’re attuned to listening for them. For example, the story of John and the petty cash fraud was told to a business professor by a beer distributor clerk while both were waiting in line at the grocery store. And the story of Jane and the false refunds was derived from a conversation a college business instructor had with a car salesman.

There are many other sources for good fraud stories. For example, Joseph Wells’ “Corporate Fraud Handbook” (second edition) is an excellent source for fraud stories. Using a case format, Wells describes a number of actual fraud stories that are keyed to the topics discussed in each chapter. The fraud cases, as well as the entire text, are written in a casual, easy-to-read style. And his new book, “Fraud Casebook: Lessons from the Bad Side of Business,” describes 62 cases that explore the three main categories of fraud: asset misappropriation, corruption, and fraudulent financial statements. (See both books in the ACFE Bookstore.)

Another excellent source for fraud stories are the local ACFE chapters. The chapters provide both excellent training and networking opportunities. By getting involved in a local chapter, educators gain perspective on cutting-edge fraud topics and acquire fraud stories from seasoned fraud examiners.

THE STRUGGLE  

Educators often struggle for ways to update their lectures and maintain their students’ interest. Fraud storytelling is one solution.

Professors should read up on fraud cases, encourage individuals (even students) to tell you about frauds that they’ve encountered, and attend local ACFE chapter meetings. Educators can begin by telling the story of a fraud that relates to the lecture of the day. Such storytelling is usually followed by greater student enthusiasm and enhanced classroom participation. With any luck, fraud storytelling in various business classes will result in students seeking out and demanding more fraud concentration courses. In the end, these classes will serve students long after they’ve left the classroom. 

William J. Kresse, J.D., M.S., CFE, CPA, is an assistant professor in the Graham School of Management at Saint Xavier University in Chicago, Ill.  

References 

Carnes, K. C. and Gierlasinski, N. J. (2001). “Forensic accounting skills: will supply finally catch up to demand?” Managerial Auditing Journal, Volume 16(6), 378-382.
Kranacher, Mary-Jo (2004). “Introducing Fraud Education into the Classroom.” Fraud Magazine. Vol. 18, No. 4 (July/August), 67-69.
Wells, J. (2007). “Corporate Fraud Handbook.” (second edition) John Wiley & Sons, Inc., New York. 

The Association of Certified Fraud Examiners assumes sole copyright of any article published on www.Fraud-Magazine.com or ACFE.com. Permission of the publisher is required before an article can be copied or reproduced.